HDFC Bank launches Digital Loans against Mutual FundsHDFC Bank has announced the launch of Digital Loans against mutual funds in association with Computer Age Management Services (CAMS). The facility will only be open to customers of HDFC Bank, including first time borrowers with no credit history. Customers can login to their netbanking accounts and get an overdraft limit approved based on the value of their funds. It will be available for 10 fund houses which together account for 60% of total assets under management in the industry.

Advantages

Instant online approval of the loan

The bank has said in its press release that your overdraft request will be decided within three minutes. The loan is structured as an overdraft which means you do not have to wait for funds to come into your account. You can start spending the amount you need even if it is more than your account balance, provided it is within the overdraft limit that has been sanctioned.

Loan against both debt and equity funds

This widens the assets against which you can get a loan. However different funds are likely to have different loan limits as a percentage of the value of the holding.

Interest is to be charged only on the amount used. This makes it a relatively efficient credit facility.

You don’t need to redeem your funds prematurely. Being forced to redeem your funds too early can force you to book lower profits or even losses depending on market conditions. Early redemption can also attract exit loads and higher taxes. Exit loads are typically levied on equity fund redemptions within one year of investing and on debt fund redemptions within varying time intervals.

Redeeming before a one year holding period in equity funds will attract 15% tax compared to 10% (with a Rs 1 lakh exemption) for longer periods. Selling your debt funds before a three year holding will attract tax as per slab rate (which could be as high as 30%) compared to 20% with indexation for longer periods.

How to get a loan against your mutual funds

Log into HDFC Bank Net Banking

Click through to the myCAMS page through HDFC Bank net banking

Select the funds against which you want to borrow money and check the amount available against them

Accept the terms and conditions of the overdraft and authenticate the request with a one-time password (OTP).

Author
Neil Borate

Neil Borate is Deputy Editor, RupeeIQ. He can be contacted at neil@rupeeiq.com.